Popular acceptance of the Internet as a viable marketplace has led online merchants to offer an increasing number of digital products for on-demand purchase and delivery. On-demand or downloadable music, movies, pictures, radio, TV programming, news, stock tips, audio books, house plans, ring tones, games, ebooks, and legal forms are just a few examples of available digital online content. Much of this content is valued at less than ten dollars with many of these products, such as individual song tracks, costing less than a dollar. “Low value” payments of less than twenty dollars are often referred to as “small payments” and those less than five dollars are often referred to as “micropayments.” The two terms are used interchangeably herein.
The value or size of micropayments often makes processing overhead and customer service costs disproportionately expensive. Transaction costs in conventional payment systems have long been a deterrent to vendors, both online and in stores, burdening or eliminating any profitability from low value transactions. The recent explosion of the digital music download market, such as Apples' I-tunes website, reflects widespread demand for “pay-as-you-go” products and services. Demonstrated success in this arena has spurred many vendors to bring additional products into the online marketplace.
Despite popular demand for low value online content, high payment processing costs for small transactions remain a challenge for retailers and the payment product industry has remained skeptical of the profitability of micropayments. The viability of this emerging market will hinge largely on optimizing overhead and transactional efficiency. Additionally, consumers and merchants alike are seeking more security and privacy in online transactions.
Earlier micro-payment systems add redundant administrative and transaction costs to the already costly merchant-consumer-funding institution interaction. Two such systems that have met with some success are the PayPal® and Peppercoin® payment systems. For example, PayPal's lowest offered rates amount to a 32% surcharge on a 99-cent, low-value transaction. The Peppercoin® system utilizes probabilistic deposit protocols or statistical algorithms to aggregate the value of small value online transactions to submit one larger payment request. Peppercoin's per-transaction fee for a 99-cent transaction may still be as high as 10 cents.
These high transaction costs are due in part to the redundancy of features offered and charged for by both the intermediary and the pre-existing payment network manager, such as, for example, micropayment processing (authorization, record-keeping, reconciling, statementing, etc.), customer service, account maintenance, fraud losses, risk management, billing, and consumer-merchant dispute resolution.
Earlier proposed systems have typically required, inter alia, (i) additional software, (ii) registration, authorization and transaction processes, and/or (iii) administration and transaction expenses (e.g. redundant reconciliation and billing processes, etc.). In short, previous transaction systems have not sufficiently met the demands for optimized overhead and transaction efficiency because such systems operate separate from and in addition to existing banking and electronic commerce systems. As such, available payment systems remain overly burdensome to micro-payment online transactions and/or provide inadequate privacy and security to online consumers. There is, therefore, a need for systems and methods to facilitate lower cost, secure, convenient transactions for the purchase of online content and low value products.